Expanding Tesco's Operations in the Australian Market: A Market Analysis

This report discusses the importance of international trade and market expansion for businesses. It focuses on Tesco's plan to expand its operations in the Australian market and provides a market analysis, including potential market size, market attractiveness, and market entry strategies.

Running head: INTERNATIONAL BUSINESS
Tesco
International Business
11/26/2018

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Executive Summary
The aim of the report is to enhance the knowledge regarding expanding the business in the
international market with the aim to increase the market share and profit. A vibrant
environment of international trade aids all the parties involved. Nations with high levels of
international trade possess a superior standard of living, steadier growth, and stronger
economies. International business exports its services and goods across the world. This
supports in gaining valuable foreign exchange. Exports lift up the country’s economic
development and reduce poverty. The strongest economies of the world are severely involved
in international trade and possess superior living standards, as per the Operation for
Economic Co-operation and Development. Exports support in opening new markets for the
business to maximize its sales. Economies fall and rise and a business that has an attractive
export market is proved to be in a superior position. In order to explain the importance of
international trade, this report has discussed different aspects involved in entering the
international market such as environmental analysis, market attractiveness, etc. To discuss all
these aspects Tesco Company has been selected for market expansion in Australia. The
political and social factors of the Australian market are in favor of Tesco to expand its
operations in the country but due to the economic decline, it can face some problems.
Moreover, the country has different competitors such as Woolworths, Coles, and ALDI who
will give strong competition and will raise barriers to the company. However, a report has
recommended Joint Venture and Green Field Investment market entry strategy for Tesco to
create its presence in the market and deal strongly with the competitors.

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Table of Contents
Executive Summary...................................................................................................................1
Introduction................................................................................................................................3
Vision of Tesco......................................................................................................................3
Mission of Tesco....................................................................................................................3
Values of Tesco......................................................................................................................3
Strategies of Tesco.................................................................................................................4
Product Strategy.................................................................................................................4
Price Strategy.....................................................................................................................4
Place Strategy.....................................................................................................................4
Promotion Strategy.............................................................................................................4
Market Attractiveness (Australia)..........................................................................................4
Political..............................................................................................................................4
Economic............................................................................................................................5
Cost of Living....................................................................................................................5
Social..................................................................................................................................5
Technological.....................................................................................................................6
Legal...................................................................................................................................6
Environmental....................................................................................................................6
Potential Market Size.............................................................................................................7
Market Analysis.....................................................................................................................7
Market Entry Strategy............................................................................................................8
Joint Venture......................................................................................................................8
Greenfield Investments......................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................12

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Introduction
Tesco is a multinational general and groceries merchandise retailer with headquarter in the
United Kingdom. It is said to be the world’s third-largest retailer in terms of gross revenue
and the world’s ninth-largest retailer in terms of revenue (Reuters, 2018). The company has
shops in seven different nations all over Europe and Asia and is the leader of the grocery
market in the United Kingdom, Thailand, and Ireland. Jack Cohen founded Tesco in 1919 as
a group of market stalls. Tesco hires around 450,000 employees in all the 11 markets.
Formerly, Tesco has expanded its business globally since the early 1990s, with operations in
the world’s 11nations (CTP the Ministry of Defence partnering with right management,
2018). In 2013, Tesco was pulled out from the USA, but today it is growing in other
countries. Presently, the company is planning to expand its operations in the Australian
market by adopting different growth strategies and thorough market analysis.
Vision of Tesco
The vision of Tesco is to create and maintain the leading position in the market and create
value for the consumers in order to gain their lifetime loyalty (Tesco, 2018).
Mission of Tesco
The mission of Tesco is being the champion for consumers, supporting them in enjoying a
superior quality of life and a simple way of living (Tesco Plc., 2018).
Values of Tesco
The success of Tesco is dependent on the values it follows in the market. The values of the
company are to understand the demand of the customers to satisfy them with superior
products. Besides this, it is focused on the sustainable development of society through
different offerings and activities.

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Strategies of Tesco
Product Strategy – Tesco has a variety of products in its stores. The product line is very vast
to meet the needs of the consumers from diverse segments in the market. The company deals
in baby care products, bakery products, food, gaming and technology products, garden and
home products, car products, beverages, home electrical products, and frozen food, toddler
and baby products, beauty and health products, books and entertainment, leisure products,
jewellery and clothing, and gifts products (MBA Skool, 2018).
Price Strategy – Tesco complies on the cost leadership strategy as its pricing strategy. It
offers quality products at the lowest price. Tesco makes use of economies of scale and the
superior channels to maintain low prices of the products.
Place Strategy – Tesco runs its operations in 11 countries with around 6900+ stores. It
possesses following kings of stores: Tesco Express, Tesco Superstore, Tesco Metro, and
Tesco Extra.
Promotion Strategy – The brand image of the Tesco is very strong, which is due to its low
price offering and promotional activities. Tesco makes use of television ads, charitable
events, and hoardings as promotional channels. Besides this, it majorly makes use of offers
and promotional discounts, for example, buys one get one.
Market Attractiveness (Australia)
Political
Political factors such as government regulations and policies in Australia affect the
profitability and revenue of retail as well as the grocery industry. For example, the Australian
Federal Government has introduced a competition policy, which prevents key major players
like Aldi, Coles, and Woolworths. The increasing dominance in the market of these retailers
had significantly affected the profit margin of small retailers (Adamkasi, 2016).

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Australian business has a high degree of certainty
Australia is considered one of the safe countries for investment. The regulatory and political
environment of the country is stable, progressive, and open, offering investors a high level of
assurance and confidence. Tesco is one of the leading retailers of UK market, which reflects
that it can give strong competition to the existing players in the Australian market; however,
the company needs to comply with all the regulations framed by the government for the
development of the nation and safeguarding small retailers.
Economic
The declining economic position of the market in Australia is influencing the performance of
different retailers. Besides this, the economic indicators like changes in the exchange rate of
the currency and flagging of the Australian dollar have negatively influenced the retail
operations of different businesses in the country (Adamkasi, 2016).
Cost of Living
The economic position of Australia is declining, that will affect the Tesco in terms of
maintaining a low cost of the products. Hence, in order to maintain the cost, Tesco can plan
to open its stores in the Perth, Brisbane, and Melbourne cities of Australia because the cost of
living in these cities is extremely less as compared to other cities.
Social
The social factor is also influencing the retail industry of Australia because the organization
operating its function in Australia needs to attain higher community and societal
development. It is due to the current social trends among customers denote that they favor
extremely socially responsible business and by taking societal initiatives, the merchants
create major influence on its consumers (Adamkasi, 2016).

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Castes and Classes
In Australia, there are major three social classes that are upper class, middle class, and the
working class, however, the boundaries among these groups are a point of debate. Around 5-
10% is counted in the upper-class section. The population that lies under middle-class section
is growing and determined as individuals with non-manual occupations. This reflects that
most of the target market will be comprised of middle-class people.
Technological
Technological factors have become very essential in terms of sales, customer service, and
supply chain. The development of digital technology has increased the number of competitors
in the market. It can decrease the product cost, enhance quality, and result in innovation.
These developments can provide benefits to the consumers and the businesses offering
services. It is very important for every business existing or new in the market to be updated
with the advanced technology in order to deal with increasing competition.
Legal
Legal factors are related to the legal environment of the organization in which it works. The
establishment of disability discrimination and age discrimination legislation, minimum wage
system are the example of recent regulations that influence the actions of the organization.
Changes in the legal framework can influence the demand and cost of the company
(Adamkasi, 2016).
Environmental
The environmental factor is influencing the performance of the retailers in the Australian
retail industry. Waste reduction, packaging, and renewable energy are some of the issues
concerned about sustainability. The big brands such as Walmart and Amazon are investing in
decreasing their carbon footprint and renewable energy (Pratap, 2017). Considering this,

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Tesco needs to grab its attention towards the environment sustainability such that it can offer
a healthy and safe environment to the customers.
Potential Market Size
From the above analysis of the market attractiveness, it could be said that Tesco can
effortlessly expand its operations in the Australian retail market. Considering the operations
of the company, political and social factors are favoring the market expansion thought of the
company. The political situation of Australia is stable which reflects that there are very fewer
entry barriers for Tesco in the market. Tesco can get success by expanding and investing in
the Australian retail industry like its existing rivals in the market ALDI, Coles, and
Woolworths. Tesco will offer low price products in the Australian market, which will attract
a maximum of the customers. However, the company will face some challenges from the
existing players in the Australian market. Besides this, this expansion of Tesco will be
beneficial for the Australian suppliers, as it will offer them increased income source.
Market Analysis
The Grocery stores and supermarkets industry are the most competitive industries of
Australia. The fast development of ALDI in the last five years has majorly changed the
operating landscape of the industry, with the status of its low-cost products and private
labeled products reinforcing strong growth. The growth of ALDI has enforced the giant
players i.e. Coles and Woolworths, to reduce their prices and increase the range of their
private labeled products (IBIS World, 2018). Unlike ALDI, Tesco can create its presence in
the future through its low price product strategies and discounting strategies. These strategies
will affect the performance and market share in the Australian market of ALDI. Besides this,
with the support or Tesco's private labeled products company can gain the attention of the
customers.

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Market Entry Strategy
Joint Venture
Joint Venture is a specific type of partnership that comprises the formation of a third self-
reliant managed company. It is also called the 1+1=3 procedure. Two businesses agree to
operate together in a specific market, either product or geographic and form the third business
to undertake this (Shishido, Fukuda and Umetani, 2015). Profits and risks under joint venture
are shared equally. Though they are called as a partnership in the informal sense, joint
ventures can take any of the legal structure. Limited liability, corporations, partnerships, and
different forms can be used to create Joint Venture. In spite of the fact that the aim of Joint
Venture is mainly for the production or research, they can be utilized for an ongoing purpose
(Prescott and Swartz, 2010).
Tesco can make use of Joint Venture as a market entry strategy in the Australian market, by
collaborating with any existing player of Australian market such as ALDI because the motive
of both the organization is to offer the best quality at lowest price. Besides this, it can also
create a joint venture with any of the United Kingdom’s company to gain a good market
share. The Joint venture can be beneficial for both the partnering organization as it gives
more growth market opportunities and increased customer share.
Advantages of Joint Venture
Starting a Joint Venture offers great opportunities to attain expertise and new insights. It
makes easy for the organization to understand the customer behavior and make strategies to
attract them. Besides this, the venture is comprised of shared investment. Both the parties of
the venture contribute some amount as the initial capital for the project, based on the
negotiated terms of the agreement (Asefeso, 2015). Thus, it reduces some of the financial
burdens from both the firms.

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Initiating a Joint Venture provide access to better resources, like the dedicated staff and
advanced technology. Tesco and ALDI will be able to use their resources effectively through
this joint venture.
A joint venture allows business to take entry in a new market very easily because the local
player manages the entire requirement related to logistics and regulations (Trost, 2011). The
Joint Venture between Tesco and ALDI will offer the opportunity to expand their market size
and product portfolio.
Disadvantages of Joint Venture
The goals of the Joint Venture are not always 100% clear and infrequently communicated
evidently to all the responsible people.
The disadvantage of Joint Venture is that it does not offer any protection for the liabilities to
the involved parties. This reflects that in a joint venture a partner has an individual
responsibility for at least his share of the company's obligation (Campbell and Netzer, 2009).
Greenfield Investments
A greenfield investment is one of the known market entry strategies. It is a type of foreign
direct investment in which Parent Company establish its operations in the foreign nation from
the ground up. Green Field Investment needs the highest participation in international
business (Morschett, Klein and Zentes, 2015). It is a field where company purchase the land,
create the facility and run the business on a continuing basis in the international market. It is
definitely the most expensive and carries maximum risk but few markets may require taking
the risk and bearing high cost because of transportation costs, the capability to access
technology, regulations of the government, or skilled labor (Otto, 2010). Through, this
market entry strategy Tesco can better position itself in the Australian market and give strong
competition to the existing players in the market.

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Advantages of Greenfield Investments
Greenfield Investments is comprised of great advantages such as increased control, the
capability to create a marketing partnership and averting intermediary costs (Breitfeld, 2010).
The Greenfield Investments will offer a high degree of direct control over the investment to
Tesco in the Australian market. Besides this, it will have complete control over the services
and products sold in the market.
Another advantage of Greenfield Investments is the flexibility to create the precise IT system
the business requires.
Disadvantages of Greenfield Investments
Businesses that operate their activities on the limited budget may merely be incapable to
create the kind of capital that is essential for an appropriate approach of Greenfield approach.
A business will deal with some hurdles when transferring to an updated IT system (Lovino,
2017).
Conclusion
Tesco is one of the strongest players of United Kingdom's retailing market. It has created its
unique place in the market by offering quality products at low prices. From the above
analysis, it can be said that Tesco can easily expand its business operations in the Australian
market due to the political stability and consumer demand. However, the economic position
of the country is not stable which raises the issues of survival for the company. The report has
suggested a company to open its stores in the cities of Melbourne, Perth, and Brisbane as
these cities of Australia has very less cost of living. Moreover, ALDI is one of the key
players that can raise competition for the company in the market because it also offers low
price products to the customers. In order to overcome this challenge company can initiate a

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joint venture as a market entry strategy with ALDI to cover the market share and increase
customer base. Besides this, Green Field Investment another market entry strategy has been
recommended for Tesco to enter the Australian market. This strategy is costly and hard to
comply with but Tesco is capable enough and experienced to attain growth through this
strategy.

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References
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https://freepestelanalysis.com/pestle-pestel-analysis-of-woolworths/ [accessed 26 November
2018]
Asefeso, A. (2015) Joint Ventures: Stronger Together 1st ed. U.K: AA Global Sourcing Ltd.
Breitfeld, N. (2010) Foreign Direct Investment (FDI) - Necessary Considerations of a
Transnational Company 1st ed. Germany: GRIN Verlag.
Campbell, D., and Netzer, A. (2009) International Joint Ventures 1st ed. Netherlands: Kluwer
Law International B.V.
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November 2018]
IBIS World (2018) Supermarkets and Grocery Stores - Australia Market Research Report
[online]. Available from https://www.ibisworld.com.au/industry-trends/market-research-
reports/retail-trade/food-retailing/supermarkets-grocery-stores.html [accessed 26 November
2018]
Lovino, A. (2017) Cloud Strategy [online]. Available from
https://www.shoregroup.com/blog/greenfield-strategy-advantages-and-disadvantages-when-
implementing-a-new-it-system-at-a-media-company [accessed 26 November 2018]

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MBA Skool (2018) Marketing Mix of Tesco Plc. [online]. Available from
https://www.mbaskool.com/marketing-mix/services/16731-tesco.html [accessed 26
November 2018]
Morschett, D., Klein, S.H., and Zentes, J. (2015) Strategic International Management: Text
and Cases 3rd ed. Germany: Springer.
Otto, M. (2010) The Relative Performance of Joint Ventures and Wholly-Owned Subsidiaries
and the Reasons why They Exit: The Case of Dutch Foreign Subsidiaries 1st ed. Verlag:
Diplomarbeiten Agentur.
Pratap, A. (2017) Retail Industry PESTEL Analysis [online]. Available from
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Prescott, D., and Swartz, S. (2010) Joint Ventures in the International Arena 2nd ed. U.S:
American Bar Association.
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https://www.reuters.com/finance/stocks/overview/TSCO.L [accessed 26 November 2018]
Shishido, Z., Fukuda, M., and Umetani, M. (2015) Joint Venture Strategies: Design,
Bargaining, and the Law 1st ed. U.S: Edward Elgar Publishing.
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Trost, T. (2011) Joint Ventures: The benefits and perils - why some are successful and others
fail 1st ed. Germany: GRIN Verlag.

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